Question
1.How would you interpret a Z score of 2.25? The Z score lies within the 'safe' zone and thus a loan should be granted. The
1.How would you interpret a Z score of 2.25?
| The Z score lies within the 'safe' zone and thus a loan should be granted. | ||
| The Z score lies within the 'high default' zone and thus a loan should be granted. | ||
| The Z score lies within the 'zone of ignorance' and thus the borrower may or may not default. | ||
| The interpretation of the Z score is always dependent on an FI manager's subjective opinion. |
2.Which of the following statements is true?
| The risk of a loan reflects the volatility of the loan's default rate around its expected value times the amount lost given default | ||
| The product of the volatility of the default rate and the loss give default (LGD) is called the 'unexpected loss'. | ||
| The product of the volatility of the default rate and the loss give default (LGD) is a measure of the loan's risk. | ||
| All of the listed options are correct. |
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